On Bonds

by Michael Carbone, CFA, CFP®

Bond investments have become more attractive as rising rates have generally pushed yields up across the board. As I write, short-term government bonds are yielding ~4.68% and longer-term bond investments ~3.454%. Current yields are significantly higher when compared to recent years.

Why are longer-term bonds paying less interest than shorter-term bonds?

  • The Federal Reserve Bank (“The Fed”) has raised short-term interest rates in an effort to cool off the economy to lower inflation.
  • Long-term interest rates are set by market forces. Long-term rates tend to be more sensitive to changes in inflation expectations. The bond markets expect inflation to fall eventually.

What individual bond investors may want to consider?

I believe individuals and families should be focusing on how bond yields might evolve over the next few years. This is particularly true for those with a large portion of their money invested in short-term bond investments. If interest rates fall, as bonds mature, you’ll be reinvesting at lower yields. If so, it may be worth considering extending the average maturity of your bond portfolio.

Please don’t hesitate to reach out to discuss these topics in greater depth. I can be reached at 978-455-7799 or Michael.carbone@raymondjames.com.

Thanks for reading!
-Michael Carbone

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Any opinions are those of Michael Carbone - not necessarily those of Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of the strategy selected.

Treasury securities are direct obligations of the United States Government and are among the most secure investments when held to maturity. Yields as of 12/7/2022 and represent yield to maturity or yield to worst call as indicated. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. Holding bonds to term allows redemption at par value.

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